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Essay / Research Paper Abstract
This 5 page paper looks at a case study supplied by the student. The paper examines the accounting strategy that is used, absorption or overhead costing, looks at how and why it is failing before suggesting an alternative strategy and system. The bibliography cites 2 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEwilcase.rtf
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Unformatted sample text from the term paper:
cost and usage. The strategy is one of traditional material control. Looking to estimate what is needed and the cost that will be paid and then sticking to that as
closely as possible. In accounting terms it appears that the company is using an absorption costing method. This is leading to the ability to budget, but also an increasing
level of potential discrepancy between the actual and the budgeted figures as there is a volatile market where the conditions are changing.
This type of costing, also known as total or full costing, has the objective of ensuring that each item produced, cost centre used and process all will bear a fair
share of the incurred overheads of the business. The main aim of using this method is to ensure that the actual overhead costs are recovered, which is why we see
the common use of the phrase overhead recovery as synonymous with the term overhead absorption (Chadwick, 2003). As we work our
way through the definition and calculation of costs in the absorption cost method the student will probably notice that although all of the costs are accounted for the method will
not provide what can be seen as an accurate or fair costing per item or centre, and as such it is an accounting tool for the management of the budget.
Here we will later see that marginal or activity based costing may be more appropriate. The first stage in absorption cost has to
be the determination of the overheads in advance of the period we are budgeting for. Therefore, we need to be looking at the next accounting period and not the current
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